California Car Buyers Beware

Recently California’s 6th Court of Appeals ruled that when a car is sold, the previous insurance is released from liability even if all of the DMV documents have not been transferred yet. Our San Francisco insurance attorneys think auto insurance consumers should be aware of this important recent ruling when buying a new car and deciding what to do about insuring a new car- the timing could be critical.

This recent case, Thiel v. Mercury General Corporation. (http://www.leagle.com/xmlResult.aspx?xmldoc=In%20CACO%2020111227042.xml&docbase=CSLWAR3-2007-CURR), turns on the specific timing and facts as to when ownership of the car was transferred and therefore when the insurance policy ceased to cover the car. Daniel Thiel bought a 2001 BMW from the Benfords in 2008. He paid for the car both with cash and a check. He was told when his check cleared the Benfords would send him the car title. However, before any paperwork could be finalized, an uninsured drunk driver struck Mr. Thiel as he was driving his new car home the very day he bought it. Mr. Thiel was not at fault for the accident and suffered head, chest and leg injuries, requiring two surgeries on his leg and physical therapy.

Mr. Thiel was also uninsured at the time, perhaps simply because had not made insurance arrangements for the car he bought just that day. Regardless, he filed a claim with Mercury Insurance, which had insured the car under the Benfords, but his claim was rejected because the Benfords filed an online Notice of Transfer and Release of Liability with the local DMV the day after the accident and therefore the coverage was terminated.

Mr. Thiel filed a lawsuit against Mercury and claimed, among other things, insurance bad faith. He cited a California statute stating that in order to be a “bona fide sale” and avoid liability when a car is delivered to the buyer, the seller must also either endorse and give the certificate of ownership or deliver the transfer and release of liability documentation to the DMV. Mr. Thiel said he had not received title and the paperwork had not been filed with the DMV at the time of the accident. The appellate court held that a bona fide sale occurred through the nature of the agreement between the buyer and seller which is not disturbed by mere paperwork delays. The court stated that by filing the online Notice within five days of the sale, the Benfords were released of all liability after the sale date, making the fact that the accident took place prior to the filing of the Notice irrelevant.

While this case has a specific fact pattern that lead to Mr. Thiel’s unfortunate dilemma, there are lessons for California auto insurance consumers. San Francisco Insurance lawyers know that auto insurance, like all insurance, can be tricky for consumers to understand. There are seemingly an endless array of clauses and particularities of when something is covered and when it is not. Perhaps when you buy a new car, you do not think of getting insurance ahead of time. Or maybe you are unaware of what happens to your previous insurance when you buy or sell a car. As always, the important thing is to know about your policy and understand the basics of the insurance laws before a problem arises. Anytime you have concerns about insurance issues, be sure to contact a San Francisco insurance lawyer to get experienced help.